Simple 5 / 8 moving average crossover

Morning guys
I have been doing a bit of demoing and live trading over the last week on this particular simple system, (Theres that word again) especially over the pairs, e/u, a/u and g/u, mainly because of low spreads and these seem to be the most popular pairs.
My simple no nonsence, take it how it is, don't answer me back else you will get a slap verdict was, that this system should be purely for a daily chart and above,
I dropped down a few times to the 4 hr charts and even entered a few trades, getting almost decimated, yes decimated I...

Ignored

In my humble (worth 2¢) opinion one needs to drop down to lower time frames and be in serious capital preservation mode when markets are as uncertain as they are. 4hrs requires to large a stop for this mess we are trading these days.

Morning guys
I have been doing a bit of demoing and live trading over the last week on this particular simple system, (Theres that word again) especially over the pairs, e/u, a/u and g/u, mainly because of low spreads and these seem to be the most popular pairs.
My simple no nonsence, take it how it is, don't answer me back else you will get a slap verdict was, that this system should be purely for a daily chart and above,
I dropped down a few times to the 4 hr charts and even entered a few trades, getting almost decimated, yes decimated I say...

Ignored

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Hi Tom. Very insightful posts. Thank You!
If you don't mind chatting and you are still enamored with the 5x8, then I would appreciated hearing about any new info you may have discovered since your last post.
I've done days and months of back & forward testing on various methods. Some from FF, but mostly my ideas.
For instance; My most recent testing done on EU 4hr using a 4x61 ema. SL 55, TP 150. Stop to BE @ +50. Now I tried several variations of TP's, SL's, BE's and no SL moving, and discovered that this iteration worked best.
Results for the past 2 years showed an annual 20%+ return. 3 years back (July 2009 thru June 2010) was basically BE at a 1% loss.
Other extensive testing I've done was on EU one hr using a 3x8 ema. SL 18, TP 43, BE goes to +3 when price has advance 15 pips from entry (not to be confused with +15). I back tested this for about 8 months and it normally averaged 8%+ monthly.
I began putting this on an EA. I'd fire it up the hour before London Open, go to bed (US CST approx 1am) and let it run until 1500 London time. A month ago it was golden, and then we got into this ranging stuff and I got squashed by the MA braiding action. Apparently I need to respect other input.
Hope I haven't put you to sleep with my ramblings. The whole reason for this is for the sake of research.
Thanks,
Darryl

I am far from a professional trader but I have spent the last year or so backtesting methods, losing money on my micro account, and jumping ship from method to method. (I.E. scalping, swing, to position trading). I have learned a lot from my mistakes and I think I am on the right track to developing the proper habits to perform at a high level in the markets.the #1 thing that became apparent to me is that these mechanical type systems will work if you execute the rules with cold-blooded consistency. It's not the system - it's the trader.

I have been backtesting a similar strategy to the 5/8 sma cross using different parameters to see what works best in different markets and it works very well - especially in trending/volatile market conditions. The concept has some definite potential. I think it's best to just pick parameters that suit your personality and risk appetite.

After reading through a good amount of the thread it seems to me the original method has been cluttered with indicators and other filtering methods that add unnecessary complexity to the system.

I recently took a couple classes on economic forecasting analysis before I graduated last June ( Class of 2012 Woot Woot! ) , and the one thing my professor stressed to us is your forecast will NEVER 100% accurately predict what's going to happen in the future no matter how much fundamental or technical data you have at your disposal. He also added there is no empirical evidence that shows that COMPLEX SYSTEMS achieve better results than SIMPLE SYSTEMS. That idea really resonated within my brain and made me realize that I needed to change my thought process in terms of trying to predict price movement.

I love the idea of simplicity when it comes to the MA Crossover method because it's robust and takes the human emotion away from the decision making. In other words, the system can be quantified.

The OP has gone out of his way to make a blueprint via entry and exit. It's not like this method is new. It's been around for years and people have made millions from it. Ask Ed Seykota. He used EMA's. He even said that systems don't change, it's the fact that people hop from system to system and lack consistency because of their inability to stay emotionally disciplined. "Everyone gets what they want out of the markets" ... so he says. I think that was a reference to life in general as well.

Here's an idea....do a quick visual backtest. Notice how the big moves are captured with this method - even moreso if you increase the 8 day MA to an even larger time parameter (I.E. 25 days).

Another poster earlier pointed out that he made more profit when he just set his stop to BE and let his system determine his exit point. When it was in a strong trend or passed a technical barrier he would add to his position...think Reminiscences of a Stock Operator..."E.H. Harriman" . The poster stressed the idea that if he trailed his stop loss at each days previous high (assuming a short position) he would have been easily stopped out causing his profits to be cut short. I thought his points were insightful in how to avoid "leaving pips on the table".

In a nutshell, Jesse Livermore - one of the world's greatest speculators ever - said markets change but human behavior never changes. Jesse Livermore said he didn't play the game for tokens. After he realized his pitfalls in trying to trade the day to day fluctations of the markets he realized his mistake came to the conclusion that the big money was made in sizing up the overall trend with the market and trading with the line of least resistance. After reading various posts from aspiring traders throughout the whole forum and analyzing my own weaknesses at the start of my journey it seems to me that the so called 95% of traders who are losing just lack the patience and discipline to hold on to their winners when they're right. It's our human nature to be greedy, fearful, and search for instant gratification. Human beings are always looking for easy money when it doesn't exist They become risk averse during times of profit and risk loving when they're hit with a clear loss (Allais Paradox). They micromanage their trades while in the market instead of sticking to a proven, statistically backed trading plan. Traders feel like they need to be in control in everything related to trade when in reality all the trader can do is manage his risk. As a result we are subject to psychological bias that negatively affect our trading (I.E. disposition, anchoring...etc ) and we end up overtrading, being overleveraged, and blowing out a significant portion of ouraccounts instead of managing risk and preserving capital.

There is a fine line between predicting price movement and anticipating based on probabilities. Anyone's effort to predict the market is futile. It can't be done with any consistency. The best we can do is find a robust system with a good expectancy and decent risk management parameters to captures the type of movements we are looking for in a method to execute over and over again. We need to become the casino instead of being the suckers playing slots.

I could give a sh*t if trading is "boring". I don't do it for the inevitable emotional thrill. Trading isn't supposed to be fun. I play the game to build wealth for the future and win. I love winning more than I hate losing. I'll take a string of losses as long as I come out on top with the trophy at the end. It doesn't matter to me. It's a business fellas.I'll have my fun when I'm traveling the world, meeting beautiful women, and the only time I even look at a trading terminal is when I check my positions to enter orders and move my stops.

You're right. It would be fantastic if the method could tell you when to add to a winning position. Let me grab my crystal ball...

Lol...I don't mean to be cynical but I think you're asking the wrong questions. Pyramiding is tricky and it's something I've been thinking about for the last few weeks as well. Here are some thoughts that might help you out.

I think the key is to add positions through retracement setups, breaks of support/resistance, or when the market has a lot of momentum. I've been toying with the idea of adding positions every 100 pips up to a predetermined threshold (I.E. 3-5 additional pyramids). Ultimately, it's up to the trader to assess the current market conditions to determine if it's optimal to add to his position. Ed Seykota in his "Trading Tribe" website talks about optimal position sizing and pyramiding techniques and he says the most important thing is to have an optimal position size and stick to the system Micromanaging the positions too much generally leads to problems. Pyramiding is good and does maximize profit while limiting risk but it could lead to overtrading if not managed correctly.

Technically, the proper way to pyramid would be to decrease lots as you add positions in order to lower your risk as the trade goes in your favor but you can also use equal sized lots. Generally speaking, I intend to hold positions for the long haul of weeks to even months so it would be wise to pyramid and take advantage of trends as they go in my favor since they only occur about 15% of the time.

For instance, say I enter at 1.21 for E/U. I would set my stop at 2xATR - say - 200 pips with a 1 lot position size. When it goes to 1.22 I would add another lot and move my previous stop up 100 pips. I would keep adding positions until I hit my maximum line for that trade. In this case, if 1 lot= 1 unit then I could pyramid to a maximum of 4 units for that market. I got this idea from the risk management section of "way of the turtle" by curtis faith. He talks about the turtle method and how Richard dennis would make sure they weren't overleveraged in their positions just in case there was an adverse price shock in which they had no control (I.E. 1987 stock market crash where their positions tanked overnight and moved passed their stops) These are also called "fat tails" or EXTREMELY low probability events that could decimate a traders account if not guarded against. From another perspective, if you do trade with the trend it mamizes your chances of capturing the price movement of price shocks and could allow for huge gains to your account.

I'm not trying to preach. Take my input with a grain of salt. I'm not a pro...yet. I wish everyone the best of luck in their trading endeavors.

try a simple money management solution when doing a manual backtest without adding positions. for instance, say you have a $100,000 account and trade 5% or say 2 lots per trade no matter what. Do a backtest of the last 5 years and see what your profit might have been while leaving a very wide trailing stop and only exiting when the MA's crossed. I think you'll be surprised at how well simplicity works. I sure was....

I met Ed Seykota and spent some one-on-one time talking to him about trading. He is considered one of the greatest traders ever.

He told me a number of things that I'll never forget.

1. He said that day trading was akin to having a slot machine on your desk and you just end up feeding it all day long.

Plus he said that he had NEVER met a successful long term day trader.

2. He said that he did use moving averages BUT he would not tell me what they were. He told me to find the ones that worked best for me.

But more importantly what he did tell me was that his favorite thing was a certain pattern. He looked for "coils" as he referred to them. He said that coils are like a spring and that the tighter you wind a spring the more force they had when released. Therefore, one of his main tricks was to put on HUGE positions with VERY tight stops just on the other side of the coil.

He said: "I want to be right right now, or I want to be out immediately if I am wrong".

3. He did not add to his positions. He put on his whole trade at the beginning and "unwound" the trade along the way. He was not specific about "how" he did that.

* I also had a friend who was VERY close to him. This friend would tell me when Ed put on a trade. All I can say is that he was wrong a lot, but when he was right, he hit a grand slam (profit-wise).

Don't concentrate on winning; concentrate on the process that creates winn

Very insightful. For some reason, I'm drawn to the zenlike aura of Ed Seykota. His interviews are always enlightening. It used to seem crazy to me that anyone would trade strictly with technical analysis but it makes a lot of sense to me now.

Anyways, coil patterns are interesting but I'm not too sure what these coil patterns would look like. I'm thinking the idea of a coiling pattern would represent some sort of indecision in price where it has to break out. Could it possibly be some triangle/pennant formations? Or maybe inside bars and outside bars? I'll have to think about it for a while.

In terms of "unwinding" his trades I think what he meant was he moved up his stops as the position went in his direction in order to lock in some profits. I remember him saying that he moves up his stops when the volatility gets crazy in one of his interviews.I don't think he actually scaled out of his trades because mathematically speaking, that would be inefficient. A scaling out strategy would ensure he would suffer his biggest losses when his position was the largest and he would ensure smaller gains when his position size is the smallest. Van Tharp has a section on taking profits and he writes a small excerpt about scaling out and its inefficiencies. He argues that its much better to take a profit in full and scaling out is for traders who need to be right about a position.

Anyways, coil patterns are interesting but I'm not too sure what these coil patterns would look like. I'm thinking the idea of a coiling pattern would represent some sort of indecision in price where it has to break out. Could it possibly be some triangle/pennant formations? Or maybe inside bars and outside bars? I'll have to think about it for a while.

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I would think about price turning up and down for a while in a tight range, like the loops of a coil.

I just happened to come across this thread, which is quite old but which interests me. Perhaps the fact that this thread seems to have died is indicative of the lack of consistent success in the following years since 2007.

The sample chart featured shows a 5/8 crossover right after a top was made, as if the trader had a "sure-fire" way to determine when and where that top occurs. I can become an instant millionaire, in theory, if I go back over historical charts and pick all the crossovers that happen after a top or bottom have formed. But, of course, the big question is how you determine where the extreme point is, from which you pick your crossover entry. Or do you just keep re-entering and getting stopped out, until finally the valid crossover occurs, which starts the new trend and results in lots of pips?

I met Ed Seykota and spent some one-on-one time talking to him about trading. He is considered one of the greatest traders ever.

He told me a number of things that I'll never forget.

1. He said that day trading was akin to having a slot machine on your desk and you just end up feeding it all day long.

Plus he said that he had NEVER met a successful long term day trader.

2. He said that he did use moving averages BUT he would not tell me what they were. He told me to find the ones that worked best for me.

But more importantly what...

Ignored

covel aka trendfollowing said he looked at his results in the decade of 90- 00 and he achieved nearly 60% annualized.

I have seen simulations of moving average crossovers that can attain that....but with more than 50% drawdowns....I believe ed views drawdowns very holistically....I once saw on his FAQ that he is tolerant of 50% drawdowns....I believe the coils are just retracements and he puts his market order just under support.